The Upside for SUNE Stock
SunEdison Inc (NASDAQ:SUNE) had a tough year in 2015; there’s no denying it. The entire market has watched, petrified, as faithless investors fled the stock in a stampede that was started by…wait, what was it that started the run on SUNE stock again?
Although the market seems decided against SunEdison, you’d be hard pressed to find anyone who could give you a convincing explanation for a 90% decline in just over six months. That’s the kind of drop that should justify an absolute lack of intrinsic value.
Yet that makes no sense. Imagine if all of SunEdison’s assets were liquidated and used to pay off its debts. Imagine if the balance was all SUNE stockholders had left over. That would still be roughly $4.57 billion, or $14.43 per share.
So, I’m not entirely certain how investors justify such a steep fall in SunEdison stock. To me, it simply looks like mob mentality swept through the market.
And I’m not the only one who thinks that.
Billionaire investor David Einhorn recently loaded up on more SUNE stock, so the question you should be asking yourself is this: why aren’t you following the smart money?
What to Look for in SunEdison
David Einhorn is the billionaire head of Greenlight Capital LLC, the same guy who grew famous for shortselling Lehman Brothers before the financial crisis. Greenlight Capital is the hedge fund through which he earned a lot of money for his investors.
Last year wasn’t Einhorn’s best year. Unexpected events can hurt even the greatest of investors, but the real fighters always plan for a comeback. This particular billionaire seems to have set his sights on SunEdison.
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His fund increased its holdings of SUNE stock from 5.8% to 6.8% in just three months, totaling nearly 27.2 million shares. What does Einhorn see in the stock? (Source: “Einhorn’s Greenlight May Seek SunEdison Sale, Filing Shows,” Bloomberg, January 25, 2016.)
Well, I can’t read his mind, but the company has some strengths that are obvious to the unbiased eye. In fact, the business model that SunEdison pioneered for renewable energy firms was enormously popular just a few years ago.
After establishing a solar or wind power plant, the company simply sells them to a yieldco-structured subsidiary. In the case of SunEdison, those subsidiaries are TerraForm Power Inc. and TerraForm Global Inc.
The brilliance of this business model was to separate the risks of construction from operation. SunEdison would handle the riskier aspects of a power plant’s lifecycle, such as construction, while the yieldcos would manage low-risk functions associated with the operational phase.
What It Means for SUNE Stock
Using clear logic instead of blind fear, it’s hard to rationalize a $2.72 (at the time of writing) share price for SUNE stock. I understand that markets overreact, but the best of investors recognize that moment as an opportunity.
Sooner or later, investors return to reason, stocks rebalance, and markets find a fair price for a company’s equity. In the case of SunEdison, that fair price could be far, far above the current level. I’m looking to this stock for some serious gains in 2016.